Spending and the Deficit

February 2, 2010 7:01 pm

The federal budget for the coming year has two challenges: to spur economic growth to speed the end of the recession and to shrink the deficit in the long term. While there will be much debate in coming months over the president’s budget blueprint, the focus must remain on these goals.

The president’s plan, unveiled earlier this week, would run up the deficit to $1.56 trillion in 2011, before ratcheting it down in future years. His $3.8 trillion spending plan includes a freeze on much domestic spending, but not defense and homeland security. It would also allow Bush-era tax cuts to expire, while closing other tax loopholes, including those for the oil and gas industry. It would reduce agricultural subsidies and funding for global AIDS work. All of these will face stiff opposition in Congress.

It increases spending on education, energy and research and development, which are Democratic priorities.

“It’s a budget that reflects the serious challenges facing the country,” President Barack Obama said Monday. “We’re at war. Our economy has lost 7 million jobs over the last two years. And our government is deeply in debt after what can only be described as a decade of profligacy.”

While saying that increased government spending was needed to ensure job growth, President Obama set the right goal of ensuring that the deficit does not grow faster than the economy. That is not enough for many.

“A projected $1.6 trillion deficit that outpaces this year’s record of $1.4 trillion is wholly unacceptable, and in this uncharted fiscal territory of unparalleled budget deficits, we should do far more to reduce government and reorient our priorities to restore long-term fiscal stability to our nation,” Sen. Olympia Snowe, a member of the Senate Finance Committee, said in a statement. “No family could run their financial house in such an irresponsible manner and it is time for the federal government — which will be borrowing more than 68 percent of the economy by the end of next year and 77 percent by 2020 — to make the kind of tough choices Americans are confronted with every day.”

True enough, but the growing deficit is, in large part, due to the huge expenditures for the wars in Iraq and Afghanistan, tax cuts in 2001 and 2003 and the addition of an expensive drug benefit to Medicare, which were supported by Republicans who are now belatedly saying the deficit is their top concern.

The president would leave the hard work of shrinking the deficit to a commission, which was rejected by the Senate last month, but that he plans to move ahead with through executive order.

The president also sidestepped the difficult and politically charged realm of entitlements; Social Security, Medicare and Medicaid now account for well over half current federal spending and unless reined in threaten to swamp the budget.

The question, as summed up by Robert Greenstein of the liberal-leaning Center for Budget and Policy Priorities, is “whether policymakers can, in the months and years ahead, set priorities and make the needed hard choices.”